Humbugs Along the Potomac

&quot;Oh, no, my dear … I am a very
good man
I'm just a very bad wizard"--The Wizard of Oz

Humbugs Along the Potomac

by Michael Vickerman, RENEW Wisconsin

In its latest staged display of bureaucratic
omniscience, the Energy Information Administration (EIA) said last week
that retail gasoline prices across the nation, which have jumped 25%
since January, will peak at $2.87 a gallon next month and then recede
before the vacation driving season begins in June. The average price
motorists will see this summer will be $2.81, a bit less than what they
paid in the previous two summers. EIA's current forecast comes one month
after its previous prediction that gasoline prices would level off this
spring at $2.67 a gallon.

The agency's sunny blandishments may
cause a few eyebrows to be raised among the millions of West Coast
motorists already paying more than $3.00 a gallon at the pump. Then
again, maybe not. With a track record for erroneous forecasting that
verges on the spectacular, why should anyone bother to listen to EIA
when more reliable predictions can be found on the daily astrology
page?

When agency statisticians issue
prediction like these, they are going well beyond the cut-and-dried
world of extraction volumes, refinery outputs, fuel imports, and implied
demand for refined products. Embedded in EIA's monthly prognostications
are assumptions regarding, for example, hurricane activity, geopolitical
tensions, the structural integrity of key pipelines, and the veracity of
OPEC's communiqués. And every month these statisticians peer into the
future and conclude, perhaps with the aid of tarot cards and/or tea
leaves, that nothing that could go wrong will go wrong.

According to EIA's oracles,
hurricanes will not menace the Gulf of Mexico this year, despite the
strengthening La Niña, nor will violence and warfare erupt anew in the
Mideast. What about ongoing refinery shutdowns, one might ask? Bad luck,
the agency would say. Deteriorating security conditions in Nigeria? A
temporary phenomenon. China's escalating demand for energy? OPEC can
handle it.

One might think it prudent to factor
in a risk premium to account for the likelihood that events beyond our
control will disrupt the flow of fuels and drive prices higher. But in
the Panglossian cocoon that EIA inhabits, Murphy's Law doesn't exist.

Had last week's divinations come out
of the mouth of, say, Carnac the Magnificent, the audience would have
snickered at its sheer preposterousness while steeling themselves for
the withering desert-themed curse that was sure to come. But when it's
EIA and not Johnny Carson that's masquerading as a swami, there's no Ed
McMahon on hand on to cue the laughter. Instead, the agency lined up a
spokesman from the American Automobile Association to lend instant
credibility to its forecast.

&quot;We think the forecast is about on
track," said AAA spokesman Geoff Sundstrom. That bit of stage management
was enough to transform yet one more ridiculously off-the-wall
prediction into an Associated Press article reprinted in numerous
metropolitan dailies under headlines like &quot;Gas prices may be cheaper
this summer." While the article dinged EIA for underestimating this
year's price increase, it failed to balance the presentation with a
contrarian perspective challenging the government's reassurances.

But not everyone at EIA is
swallowing the agency's Kool-Aid with the requisite gusto. In a bow to
reality, EIA Chief Guy Caruso openly frets over gasoline inventories,
which are unusually low considering the proximity of the summer driving
season.

&quot;The volume of imports is lower than
we thought," Caruso said to a Dow Jones reporter.

What disturbs Caruso is the recent
decline in the volume of gasoline imports, coupled with an unexpected
series of refinery shutdowns both home and abroad. Refiners are
struggling to keep up with accelerated demand at the same time the
world's petroleum supply is gradually becoming heavier and more laden
with impurities like sulfur. Some U.S. refineries cannot process
lower-grade crude at all, which leaves the country increasingly
dependent on gasoline imports.

Moreover, EIA estimates that U.S.
gasoline demand is 2% to 3% percent higher than it was a year ago, and
shows no sign of tailing off. With that, the illogic of EIA's outlook
becomes transparent. How can inventories rise when demand is running
higher than available supply? Why would gasoline prices drop under those
circumstances? And, why would overseas refiners step up exports of
gasoline to the United States if lower prices are baked into the
equation?

EIA's monthly and annual predictions
have only one purpose: to prevent the mainstream media from alerting the
driving public to the fragility of the domestic energy picture. And to
that end last week's stunt succeeded, despite Mr. Caruso's worries. The
vast majority of reporters and editors clearly lack both the technical
expertise and the inclination to challenge these official reassurances
on energy. In the absence of a full-blown crisis, the humbugs behind the
curtain will continue to use the power of illusion to stop us from
learning the truth about the energy squeeze that's upon us.

Petroleum and Natural Gas Watch is a RENEW
Wisconsin initiative tracking the supply‑demand equation for these
fossil fuels, and analyzing its effects on prices, consumption levels,
and the development of energy conservation strategies and renewable
energy alternatives. For more information on the global and national
petroleum and natural gas supply picture, visit "The End of Cheap Oil"
section in RENEW Wisconsin's web site:
www.renewwisconsin.org. These commentaries also posted on RENEW's
blog:
http://www.zmetro.com/community/us/wi/madison/renew and Madison Peak
Oil Group's blog:
http://www.madisonpeakoil-blog.blogspot.com

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